Our daily bread? It costs more
When a French-style patisserie opened on Pico Boulevard in Los Angeles six years ago, owner Julien Bohbot thought the competition for his small Delice Bakery would come from the other kosher bakeries down the street.
But now Bohbot is competing with bakers from Paris and Pretoria -- all in search of flour. Short supplies have raised the price of wheat worldwide and sparked protests over the cost of tortillas in Mexico and pasta in Italy. In the United States, it’s raised the cost of such basic goods as bread, cereal and pizza.
The latest statistics from the federal government have given Bohbot more reason to worry. The price of bakery and cereal products rose 1.8% in February, the largest monthly increase since January 1975. Overall, the cost of eating at home has risen more than 5% so far this year, the fastest rate since 1990.
Mike Celeste, a San Dimas financial advisor, has experienced the increase firsthand. Since October, the price of the two-loaf bag of sourdough bread he frequently buys at Sam’s Club has jumped 28% to $4.06. Celeste said the warehouse chain also raised the price of the fresh pizza he likes by 90 cents, to $8.87.
The price of white bread has risen 19% in the Western U.S. since June, according to the government.
The plight facing small bread makers like Bohbot -- and much larger businesses such as Sara Lee Corp. -- prompted the American Bakers Assn. to hold a protest march in Washington, D.C., last week.
“It is crucial that the White House, our elected representatives and the Department of Agriculture hear firsthand how bakers . . . are struggling with current market conditions,” said Robb MacKie, chief executive of the trade group. “Wheat markets -- and commodity markets in general -- are behaving in ways that we have not seen before. We believe that extraordinary circumstances call for extraordinary measures.”
As the bakers were marching, wheat hit a record price of $12.70 a bushel Wednesday. It fell back to $11.60 by Friday but still stands 31% above where it started the year.
A series of wheat crop failures abroad, combined with the U.S. dollar being at historic lows against the Euro and other currencies, has forced Bohbot and other bakers to compete with the rest of the globe for grain -- even what’s grown in the United States.
World demand for the staple has sent the price of the 50-pound bags of flour Bohbot uses for his baguettes and marzipan cakes soaring to $27, up from $12 a year ago.
To cover the increase, Bohbot has doubled the price of his loss-leading baguettes to $1.98 and pushed the cost of his breads up a buck to $5.50.
Bohbot said it’s only going to get worse. His supplier will be increasing the price of flour “to $30 next week and said it could be $60 in a few months.”
Big companies are pushing their prices up too. Three times in the last year, baking giant Sara Lee raised what it charges supermarkets for its bread and bagels -- an average increase of 25 cents per product.
Pizza makers also are struggling with higher flour prices.
“We are really nervous. What happens if we have to charge $14 or $15 for a pizza that we sell for $9.95 now?” said David Sanfield, co-owner of Pitfire Pizza Co., a chain of three Los Angeles restaurants that buys more than 7,000 pounds of flour a month.
Some bakers want the government to create a strategic reserve of wheat, similar to the emergency oil supply it keeps on hand.
On Wednesday, MacKie, the head of the bakers’ association, called for a reduction in the federal Conservation Reserve Program, which pays farmers to plant ground cover instead of wheat or other crops -- thus improving water quality, controlling soil erosion and creating habitat for waterfowl and other wildlife.
He believes such a move could free up as much as 7 million acres for planting wheat and other food crops. MacKie also wants the government to waive penalties for farmers seeking early release from the program, which typically locks up land for 10 to 15 years.
The trade group also said the government needs to better balance the use of farmland between food and fuel needs. On land previously used for wheat and other food crops, farmers are rushing to plant corn to be refined into ethanol.
Bohbot, the Pico Boulevard baker, also wants the government to step in. He said he doesn’t understand why the U.S. continues to allow wheat exports at a time when supplies are so short here. Other nations, including Argentina, Russia and China, have slapped new restrictions and tariffs on exports of wheat and other grains in an attempt to protect their domestic supplies.
For now, there’s not much that bakeries can do about the soaring cost of wheat, said Chris Hurt, a Purdue University agricultural economist. They are small players, used to purchasing supplies as they use them, and they don’t have the clout or economic sophistication to compete with the giant foreign buyers and market speculators that are outbidding domestic users of American grain.
Wheat exports are 32% higher than one year ago, 33% of the U.S. soybean crop will be shipped abroad and corn exports this year are on pace to rise by 15% and break the 1979-80 record of 2.4 billion bushels, Hurt said.
Normally, people start to cut back on items when prices soar. But bread and wheat products are such basic foodstuffs that few consumers are doing that at this point, Hurt said. “It has to get to a critical level before we see a change in consumption. There are not a lot of good substitutes for bread.”
Still, companies like Pitfire and Delice are particularly vulnerable because they sell upscale products in an economy where there are lower-priced options, such as supermarket brands and Domino’s Pizza.
They also won’t get any relief soon from the foreign buyers purchasing American wheat, because the dollar’s low value blunts a large part of the price increase experienced domestically. Right now, for example, $11-a-bushel wheat in the Midwest is equivalent to something in the range of $8.25 overseas, Hurt said.
That’s showing up in orders for the 2008-09 U.S. wheat crop, said Joe Sowers, senior market analyst with U.S. Wheat Associates, a farm trade group. Foreign nations have already placed orders for 2 million metric tons of wheat, almost 10 times the advance purchase of a year ago.
“Japan, the Philippines, South Africa and a lot of other countries don’t want to get left behind,” Sowers said.
“We are at the bottom of the wheat bin.”